The following ratio relates the results of operating performance to the investments (assets) of a firm without regard to how the firm financed those investments. $\frac{\text { Net Income + Interest Expense Net of Income Tax Savings}}{\text {Average Total Assets }}$

The ratio is called a rate of return on:
A)assets.
B)long-term investments.
C)shareholders' equity.
D)net income.
E)net income and interest expense net of income tax savings.

Question

The following ratio relates the results of operating performance to the investments (assets) of a firm without regard to how the firm financed those investments.

\frac{\text { Net Income + Interest Expense Net of Income Tax Savings}}{\text {Average Total Assets }}

The ratio is called a rate of return on:

The ratio is called a rate of return on:
A)assets.
B)long-term investments.
C)shareholders' equity.
D)net income.
E)net income and interest expense net of income tax savings.

Quizplus · Accepted Answer

This ratio is known as the rate of return on assets (ROA). It measures how efficiently a company uses its assets to generate profit, without considering the financing structure (equity vs. debt). The inclusion of "Interest Expense Net of Income Tax Savings" in the numerator allows for a focus on operational performance by neutralizing the effect of financing costs.

The Following Ratio Relates the Results of Operating Performance to the Investments